RCom net profit drops 43%, missing estimates

Analysts had expected the company to report a net profit of Rs.183 crore. Photo: Hemant Mishra/Mint

Updated: Wed, Jan 23 2013. 10 38 PM IST

Mumbai:Reliance Communications Ltd (RCom), India’s third-largest mobile phone carrier by subscribers, reported a bigger-than-expected 43.3% drop in net profit to Rs.105 crore in the quarter ended 31 December from Rs.186 crore a year ago as heavy debt continued to weigh on earnings.

Analysts had expected RCom to report a net profit of Rs.183 crore, according to Thomson Reuters I/B/E/S.

RCom’s consolidated revenue was up 5% from a year ago to Rs.5,301 crore while Ebitda (earnings before interest, tax, depreciation and amortization or operating profit) at Rs.1,653 crore was up 2.4% from Rs.1,614 crore.

The stock closed at Rs.88.10, up 0.63%, on Wednesday on BSE. The benchmark Sensex rose 0.23% to 20,026.61 points.

The Ebitda margin at 31.2% in the reporting quarter was led by both wireless and global enterprise businesses, the company said in a statement to BSE. RCom’s revenue per minute (RPM) stood at 44 paise.

“We have successfully achieved RPM stability for the last 11 consecutive quarters amidst increasing competition and over supply of minutes in the market place,” the company said in a statement.

An analyst with a Mumbai-based brokerage, who did not want to be cited, said, “Given that this is the first result among telecom operators, it is very positive for the sector if we focus on RPM growth in the reporting quarter compared to that in the trailing quarter. Although, we were expecting higher profitability in operations as well, that hasn’t come through. Debt and high interest cost are also a big concern.”

Last September, RCom had raised its base tariff from Rs.1.20 to Rs.1.50 and indicated it expects industry tariffs to go up two-three times in the next 12-18 months.

Another analyst, who also did not want to be quoted, said, “The price increase taken by RCom has been meaningful leading to growth in RPM. Probably, RCom has been more proactive in raising tariffs compared to other players. (Bharti Airtel announced a tariff increase on Wednesday.) But this tariff increase could have also impacted its minute growth (103 billion minutes), which has been lukewarm quarter on quarter.”

In a 21 January report, analysts from Motilal Oswal Securities Pvt. Ltd said their meeting with RCom’s wireless business chief executive officer, Gurdeep Singh, reaffirmed that focus on RPM and profitability improvement has increased across operators. “RCom’s wireless RPM has been steady over the past 10 quarters. Sustained industry-wide RPM improvement would require lowering of RPM discount for challengers vs the leader in the respective circles,” the report stated. It added that RCom has low spectrum liability and high sensitivity to RPM improvement but cautioned that high leverage remains a concern.

RCom has long-term debt repayments of around Rs.3,600 crore coming up in fiscal 2014-2015, according to the report. “We estimate excess spectrum liability at around Rs.2,000 crore and renewal (FY16) at around Rs.1,700 crore,” the report said.

RCom also said it has 6.1 million 3G customers and 27.6 million data customers. According to Motilal Oswal analysts, RCom has identified its “3G 900” and “3G metro” circles as pockets of strategic strength (accounting for around 50% of the company’s wireless revenue).

Key focus areas for cost reduction, according to the analysts, include network costs, subscriber acquisition and employee costs.